FY 2020 Budget & Policy Brief – Water

Highlights

 Nearly $50 million to stretch existing water resources further by improving water efficiency, including:

  • Over $22 million for municipal and industrial (M&I) water efficiency efforts, particularly water metering
  • $15 million for agricultural water efficiency
  • $10 million for school district water efficiency
  • $2 million for state facility water efficiency

Increasingly emphasize water rates as the core funding mechanism for water, including a shift of sales tax earmarks for water to a statewide water user fee

 Objective

To develop water funding policies and mechanisms that ensure:

  • the State of Utah maintains a financial role that is fiscally prudent and sustainable
  • Utah’s limited water resources are wisely used
  • an appropriate alignment between the costs of water and the use of water
  • the water quality of our lakes, rivers, and streams is protected
  • accurate and reliable data is available to policymakers to make informed financial decisions
  • a sufficient, safe, and reliable supply of water meets appropriate usage levels for a growing population and balances residential, commercial, recreation, agricultural, and environmental uses.

Background

As one of the driest states in the nation, water is always a topic of concern for Utah. While Utah has successfully thrived despite its arid environment, the challenges of population growth, aging infrastructure, and an uncertain climate will require creativity, determination, and leadership.

Utah should take a comprehensive view of water management. Policies and strategies must be developed or better implemented to encourage more efficient use of water by all water users (residential, commercial, agricultural, government, and non-profit entities). Strategies should include strong and clear price signals, enhanced public education, increased use of existing and emerging water-saving technologies, increased water-wise landscaping, and the elimination of conservation barriers in local and state laws. As growing demands stress existing supply, solutions should maximize the efficient use of existing water infrastructure and supplies, as well as recognize the increasing value of limited water resources. 

An increased recent focus on water has yielded positive results. Improved processes and strategic investments have accelerated the slow pace of water rights adjudication. The challenge to improve water data has been met head on, with improved insight into current water use. Individuals, businesses, researchers, communities, and agricultural producers across the state have contributed to conservation efforts. However, much work still remains to optimize Utah’s limited water supply.

State Water Strategy Recommendations

The 2017 Recommended State Water Strategy provided helpful insights as Utahns navigate the unique challenges of a growing population in an arid, water-constrained region. Many of the recommendations are being addressed or have been prioritized for implementation in the near future. Among the many strategies identified, optimizing the use of existing developed water, improving water data and establishing a framework for water markets are a few clear near-term priorities.

Given that much of the M&I water supply goes to outdoor watering and Utah’s population continues to grow, another near-term priority should be ensuring future land development is water-efficient by design. Communities should integrate water and land use planning to ensure community plans and ordinances implement water-saving strategies, including adoption of modern water technology. State financing should be contingent on these efforts.

As shown in Figure 1, even for existing landscapes, a recent independent study on the state’s water data indicated Utahns currently tend to apply much more water than a healthy plant would require. 

Considering current per-capita usage, projected population growth, the age and condition of existing infrastructure, and a decrease in federal financing, numerous individuals and entities have proposed ideas on ways to maintain, replace, and develop new water infrastructure. This dialogue provides welcome perspectives and much-needed information. However, expanding the state’s role in water financing—including any use of state funds or bonding capacity—must thoroughly consider the impact on Utah’s taxpayers and should only be considered after all other alternatives, including local efforts, available federal financing and more efficient use of existing water, have been exhausted. 

If the state continues down this path, the Governor recommends the state’s financing terms for major projects protect the state’s fiscal stability, which includes ensuring major project repayment terms are not more lenient than those offered by the federal government as it financed major water projects in recent decades, and state taxpayers are fully repaid.

Figure 1

Water Use

Figure 2 shows the distribution of diverted water in Utah. Diverted water is generally categorized as agricultural water (estimated at 82 percent) and municipal and industrial (M&I) water (estimated at 18 percent).

Of the estimated 18 percent statewide total diverted M&I water use, 3.5 percent is residential indoor use, 6.5 percent is residential outdoor use, 2.5 percent is commercial and industrial use, 1.5 percent is institutional use (such as governments and schools), and 4 percent is public non-community use, which includes specific industrial uses.

Looking to the future, policymakers should take a comprehensive view of water and seek to optimize water use across the board. In particular, a strong emphasis on more efficient M&I water use should continue for all types of water users, particularly for excessive outdoor water use.

As Utah’s single largest water user, it is also important to review and better understand agricultural water use. Recognizing that any policy change should protect existing water rights and include proper economic incentives for agricultural water users, relatively minor increases in true agricultural efficiency (accounting for return flow) could have a sizable impact on the state’s overall water use. In addition, the creation of water markets—where a water user could retain water rights while voluntarily contracting with another water user to temporarily use that water elsewhere—could be a viable option for more efficiently managing water use during times of drought.

Figure 2: Uses of Diverted Water

Water Use Choices Will Drive Water Cost Levels

Assuming current water usage levels remain as is or only minor efficiency improvements occur and Utah’s population growth continues, the demand for M&I water is projected to exceed supply over the coming decades.

Utahns have a very important choice to make about water use. If population growth continues as projected, the need for additional water supply at some future point in time is a given; however, the timing of new water system development can vary dramatically depending on water usage. More judicious use of existing water could delay costly major development projects, while the failure to more efficiently use existing developed water will lead to accelerated water project construction schedules and bring accelerated cost increases.

Stretching Limited Water Resources – Water Metering and Efficiency

Unfortunately, significant portions of Utah’s M&I water remain unmetered, especially for residential and institutional (government and nonprofit entity) uses. For example, the fiscal note on SB 204 of the 2018 General Session estimated that over 200,000 water connections were unmetered. Having significant unmetered water means, at best, total water use levels and water use per capita are approximations. This uncertainty about current water use creates challenges for appropriate long-term planning. 

Measuring all M&I water use and informing consumers of their water use through improved billing practices that allow for better decision making are important steps in better managing this scarce resource and should be completed prior to the state funding major water projects. The Weber Basin Water Conservancy District has begun metering unmetered connections and found water metering alone reduced outdoor water use by an average of 35 percent, with even higher levels (up to 50 percent) during hot and dry years.

While metering M&I water is primarily a local responsibility, the Governor’s budget recommends accelerating the pace of water metering by allocating $22.2 million to support M&I water metering, more informative local billing practices and other water efficiency efforts. In addition, the Governor recommends $10 million for school water metering water efficiency efforts, and $2 million for the state to meter water at its facilities, including the State Capitol, and to make other needed water efficiency improvements. An additional $15 million is recommended for agricultural water efficiency improvements. These funding recommendations all help to optimize the use of existing developed water. 

Aligning Fiscal Policies with Stated Goals of Efficient Water Use by Emphasizing Water Rates to Pay for Water

No one wants increased water rates. However, water rates will need to increase over time to pay not only for costly new development projects, but also for costs to fix and replace aging infrastructure. While local water user fee increases are unpopular, so are state tax increases. Depending on water use levels and the level of costs incurred by the state, Utahns will likely soon face a real choice between statewide tax or fee increases or local water rate increases to pay for water costs.

Moving from a weak and muddled water price signal to a strong and clear price signal will encourage more efficient water use. To this end, the Governor recommends state sales tax earmarks for water be shifted to a statewide water user fee on all M&I water, including institutional water use. This statewide water user fee should be the state’s funding mechanism for water and be based on the volume of water used (such as for every 1,000 gallons). As part of this funding shift, the Governor recommends a basic amount of residential water use be exempted from the statewide water user fee so that truly essential water use remains affordable.

Executive Water Finance Board Recommendations

To ensure the State of Utah maintains a fiscally prudent and sustainable water finance policy, the Governor created the Executive Water Finance Board in 2017. The board brings together individuals with extensive experience and expertise in water, planning, budgeting, economics and finance to provide critical insights regarding the financial and economic aspects of both the demand and supply of water. As the state grapples with various funding proposals for water projects such as the Lake Powell Pipeline and Bear River 

Development that may rely on state financing, the Board conducts financial and economic reviews and analysis and makes recommendations to the Governor.

While much work remains, the Executive Water Finance Board made the following initial recommendations in 2018:

  • Major Project Financing. For major project financing (such as the Lake Powell Pipeline and Bear River Development), the board recommends the state establish a guideline of at least a 25 percent local down payment, the state not undertake debt that would jeopardize its AAA bond rating, and available federal funding and financing be pursued, including from the federal Water Infrastructure Finance and Innovation Act (WIFIA) program. The board also plans to address local repayment funding sources, loan terms and interest rates to ensure full state repayment. Additional background details on considerations related to financing these major projects can be found online at gomb.utah.gov.
  • Water Metering. The board recommends (a) requiring all new developments that use M&I water statewide meter all water use and (b) that all existing developments that do not currently meter water be retrofitted with water meters within a 10- to 20-year time period and the state pay a portion of the water meter retrofitting costs.
  • Capital Replacement Financing. The board recommends that all sizable water systems fund a long-term capital repair and replacement financing plan, including but not limited to replacement and maintenance of existing assets and assets related to future growth, as well as audits of non-revenue water (such as system leaks).
  • Water Use Efficiency. The board recommends the State of Utah set a conservation target for its own water use at state facilities, convene a water summit of institutional water users to share best practices, and require any sizable water system to provide the state a detailed water conservation plan that addresses the following: smart metering, water billing practices, and delivery of detailed and actionable water use information in water bills to consumers, including comparisons with similar water users. The board also recommends appropriate technical assistance be available to smaller local entities that need the assistance and both state and local entities that report water data to the state continue to improve water data reporting.

Recognizing projects are not currently funded and current statutes will require changes, ongoing discussions will be necessary to ensure appropriate terms are in place prior to the state allocating additional funds for major state-financed projects.